Economics Ch. 8

Use the information in the graph in Ch. 8 Homework assignment to find the values for the following at an output level of 35. The marginal cost is ​$ 32. ​(Enter a numeric response using an​ integer.) The total cost is ​$ 2415. The variable cost is ​$ 1855. The fixed cost is ​$ 560.

Marginal Cost is $32. Total Cost= Cost*quantity of output. 35*79= 2415 Variable cost= Cost*Quantity of output. 35*53=1855. Fixed cost= Total cost-Variable cost. 2415-1855=560.

Total cost

The cost of all the inputs a firm uses in production.

Total Cost (TC)

The cost of all the inputs used by a firm, or fixed cost plus variable cost.

Opportunity cost

The highest valued alternative that must be given up to engage in an activity.

Minimum efficient scale

The level of output at which all economies of scale are exhausted.

Short run

The period of a time during which at least one of a firm's inputs is fixed.

Long run

The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.

Technology

The processes a firm uses to turn inputs into outputs of goods and services.

Production function

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.

Economic of Scale

The situation in which a firm's long-run average cost falls as it increases the quantity of output it produces.

Constant returns to scale

The situation in which a firm's long-run average cost remain unchanged as it increases output.

diseconomies of scale

The situation in which a firm's long-run average cost rises as the firm increases output.

Average product of labor

The total output produced by a firm divided by the quantity of workers.

Average Total Cost

Total cost divided by the quantity of output produced.

Average Total Cost (ATC)

Total cost divided by the quantity of output produced. ATC=TC/Q

Suppose the total cost of producing 15,000 tennis balls is ​$50,000​, and the fixed cost is ​$10,000. What is the variable​ cost? ​$40000. ​(Enter a numeric response using an​ integer.) When output is 15,000​, what is the average variable​ cost? $2.67. ​(Enter a numeric response using a real number rounded to two decimal​ places.) When output is 15, 000​, what is the average fixed​ cost? ​$.67. ​(Enter a numeric response using a real number rounded to two decimal​ places.) Assuming that the cost curves have the usual​ shape, the dollar difference between average total costs and average variable costs decreases as output increases.

Variable Cost= Total cost-fixed cost. $50,000-$10,000= $40,000. Average Variable Cost= Variable Cost/Quantity. $40,000/15,000= $2.67 Average Fixed Cost= Fixed cost/Quantity. $10,000/15,000= $.67 Average variable cost decreases as output increases.

Average variable cost

Variable cost divided by the quantity of output produced.

Average Variable Cost

Variable cost divided by the quantity of output produced. AVC=VC/Q

Refer to the table on Ch. 8 Homework assignment. When do diminishing returns in the production of pizzas​ start? A. when the second worker is hired B. when the third worker is hired C. when the fourth worker is hired D. when the fifth worker is hired

When the third worker is hired.

The law of diminishing returns applies A. either in the short run or the long run. B. in the long run. C. in the short run. D. None of the above.

c. In the short run

Technological Change

A change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Explicit cost

A cost that involves spending money.

long-run average cost curve

A curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, which no inputs are fixed.

What is the difference between the short run and the long​ run? A. In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology. B. In the short​ run, a firm can vary all inputs but technology is​ fixed, while in the long​ run, a firm can vary all inputs and adopt new technology. C. In the short​ run, all of a​ firm's inputs are​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology. D. In the short​ run, all of a​ firm's inputs are​ fixed, while in the long​ run, a firm is able to vary at least one input and adopt new technology. E. In the short​ run, a firm can vary all inputs but technology is​ fixed, while in the long​ run, a firm can adopt new technology but all inputs are fixed. Is the amount of time that separates the short run from the long run the same for every​ firm?

A. In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology. No

How are implicit costs different from explicit​ costs? A. An explicit cost is a cost that involves spending​ money, while an implicit cost is a nonmonetary cost. B. An explicit cost is not an opportunity​ cost, while an implicit cost is an opportunity cost. C. An explicit cost is a cost incurred in the short ​run, while an implicit cost is a cost incurred in the long run. D. An explicit cost is a cost incurred as output changes​, while an implicit cost is a cost incurred holding output constant. E. Both a and b.

A. An explicit cost is a cost that involves spending money, while an implicit cost of a nonmonetary cost.

As the level of output​ increases, what happens to the difference between the value of average total cost and average variable​ cost? As the level of output​ increases, the difference between the value of average total cost and average variable cost A. decreases because average fixed cost decreases as output increases. B. decreases because average total cost and average variable cost decrease with output. C. remains constant because average fixed cost remains the same as output increases. D. increases because average variable cost increases with output but average fixed cost decreases with output. E. remains constant because average total cost and average variable cost both increase with output.

A. Decreases because average fixed cost decreases as output increases.

Which of the following is most likely to be a fixed cost for a​ farmer? A. insurance premiums on property B. cost of fertilizer C. wages paid to farm workers D. cost of seeds

A. Insurance premiums on property

Marginal Cost (MC)

An increase in total cost resulting from producing another unit of output. MC=ΔTC/ΔQ

List the errors in the graph to the right ​(where AFC is average fixed​ cost, AVC is average variable​ cost, ATC is average total​ cost, and MC is marginal cost​). Refer to graph in Ch. 8 Homework assignment. A. AFC should be​ MC, ATC should be​ AVC, and AVC should be AFC. B. AFC should be​ MC, ATC should be​ AVC, and AVC should be ATC. C. AFC should be​ MC, ATC should be​ AFC, and AVC should be ATC. D. AFC should be MC. E. ATC should be AVC and AVC should be ATC.

B. AFC should be MC, ATC should be AVC, and AVC should be ATC.

Any cost that remains unchanged as output changes represents a​ firm's A. variable cost. B. fixed cost. C. opportunity cost. D. marginal cost.

B. Fixed Cost

Explain why the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum. The marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum because A. the firm begins experiencing economies of scale at this quantity. B. when the marginal cost of the last unit produced is below the​ average, it pulls the average​ down, and when the marginal cost is above the​ average, it pulls the average up. C. the firm begins benefiting from specialization at this quantity. D. when the marginal cost of the last unit produced is​ increasing, the marginal product of labor is at a minimum. E. the firm begins experiencing diminishing returns at this quantity.

B. When the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the average, it pulls the average up.

Economies of scale occur A. when the marginal cost of production decreases with output. B. when a​ firm's long-run average costs decrease with output. C. when a​ firm's long-run average costs increase with output. D. when the marginal product of labor increases with output.

B. when a firm's long-run average costs decrease with output.

What are diseconomies of​ scale? Diseconomies of scale is A. when a​ firm's long-run average costs decrease with output. B. when a​ firm's long-run average costs increase with output. C. when the marginal product of labor is decreasing with output. D. when the marginal cost of production is increasing with output.

B. when a firms long-run average costs increase with output.

The marginal cost of production shows the change in a​ firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost​ curve? ​ Graphically, the marginal cost curve is A. a U​ shape, initially falling when the marginal product of labor is below marginal cost and then eventually rising when the marginal product of labor is above marginal cost. B. a U​ shape, initially falling due to diminishing returns and then eventually rising due to specialization. C. a U​ shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling. D. shaped like a​ hill, rising when the average cost of production is rising and then eventually falling when the average cost of production is falling. E. shaped like a​ hill, initially rising when the marginal product of labor is falling and then eventually falling when the marginal product of labor is rising

C. A U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.

Which of the following is most likely to a variable cost for a business​ firm? A. rent on the office building B. interest on​ long-term outstanding bonds C. cost of shipping products D. property taxes

C. Cost of shipping products

Variable cost

Costs that change output changes.

Variable Cost (VC)

Costs that changes as a firm's level of output changes.

Fixed Cost (FC)

Costs that remain constant as a firm's level of output changes

Fixed costs

Costs that remain constant as output changes.

For which of the following​ reason(s) may firms experience economies of​ scale? A. Large firms may be able to purchase inputs at lower costs than smaller​ competitors; they can also borrow money at a lower interest rate. B. Both managers and workers may become more specialized and hence more productive as output expands. C. ​Firm's production may increase with a smaller proportional increase in at least one input. D. All of the above.

D. All of the above.

Any cost that changes as output changes represents a​ firm's A. fixed cost. B. sunk cost. C. overhead cost. D. variable cost.

D. Variable Cost

Suppose that last semester your semester GPA was 3.90 and your resulting cumulative GPA was 2.88. ​ Next, suppose that this semester your semester GPA will be 3.50. If​ so, then your cumulative GPA A. will decrease because your​ "marginal" GPA will be below your semester GPA last semester. B. could increase or decrease because your​ "marginal" GPA will be below your semester GPA last semester but above your cumulative GPA. C. will increase because your​ "marginal" GPA will be above your semester GPA last semester. D. will increase because your​ "marginal" GPA will be above your cumulative GPA. E. will increase because your​ "marginal" GPA will be below your semester GPA last semester.

D. Will increase because your "marginal" GPA will be above your cumulative GPA.

What are implicit​ costs? An implicit cost is A. the​ highest-valued alternative that must be given up to engage in an activity. B. a cost incurred in the long run. C. a cost that remains constant as output changes. D. a cost that changes as output changes. E. a nonmonetary opportunity cost

E. A nonmonetary opportunity cost.

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or​ factory? A. The marginal product of labor begins to decrease according to the law of diminishing returns. B. Fixed costs become too large. C. Higher output levels result in lower market prices. D. Firms exhaust the benefits of specialization. E. Firms have difficulty coordinating production.

E. Firms have difficulty coordinating production.

If the marginal product of labor is falling​, is the marginal cost of production rising or​ falling? Briefly explain. If the additional output from each new worker is falling​, A. the marginal cost of that output is rising due to division of labor. B. the marginal cost of that output is rising because the total cost of labor is increasing with each additional worker. C. the marginal cost of that output is rising due to diseconomies of scale. D. the marginal cost of that output is falling because the only additional cost to producing more output is the additional wages paid to hire more workers. E. the marginal cost of that output is rising because the only additional cost to producing more output is the additional wages paid to hire more workers.

E. The marginal cost of that output is rising because the only additional cost to producing more output is the additional wages paid to hire more workers.

Average fixed cost

Fixed cost divided by the quantity of output produced.

Average Fixed Cost (AFC)

Fixed cost divided by the quantity of output produced. AFC= FC/Q

Implicit cost

Non monetary opportunity cost.

Pizzas can be produced using either a small or large restaurant. The graph shows the average total cost of producing pizzas using a small restaurant ​(ATC Subscript Upper S​) and a large restaurant ​(ATC Subscript Upper L​). Refer to graph in Ch. 8 Homework assignment. Suppose Parker plans on selling 600 pizzas. If​ so, then Parker should choose to produce using a ________________ (Small/Large) restaurant.​, where the average total cost of production is ​$______________. (Enter your response rounded to two decimal​ places.)

Small $5.50

Marginal Product of Labor

The additional output a firm produces as a result of hiring one more worker.

Marginal cost

The change in a firm's total cost from producing one more unit of a good or service.

Law of diminishing returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.